Abstract

Prior literature demonstrates that an increased trading activity of a firm’s stock, over short periods of time such as a week, is associated with abnormal future stock returns (the high-volume return premium). In this study, we investigate whether the increased trading activity entails real actions at the corporate level. We document a positive relation between abnormal trading volume, future investment expenditures, and financing cash flows. This positive relation is not subsumed by the arrival of investment-related news or other corporate disclosures, nor by subsequent earnings information, and is concentrated among firms with high financial constraints and firms with lower levels of investor recognition.

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